Mountain Province Diamonds Inc.

Good morning, ladies and gentlemen, and welcome to Mountain Province Diamonds, Inc. Q4 and 4-Year 2021 Conference Call and Webcast. At this time, all lines are in the listen-only mode, but following the presentation, we will conduct a question-and-answer session. If at any time during the call you require immediate assistance, please press star zero for the operator. Also note that the call is being recorded on Tuesday, March 29, 2022. And I would like to turn the conference over to Mr. Mark Wall, President and CEO. Please go ahead, sir.

Thank you very much. Good day to everyone who's dialed in to listen to our full year 2021 and Q4 results call. My name is Mark Wall and I'm the President and CEO of the company. Firstly, I would like to draw your attention to our cautionary and forward-looking statement. This presentation will be posted on our website for anyone who needs additional time to review this statement. Today, I'll start by identifying some of the key highlights from the fourth quarter and full year 2021, as well as commenting on debt and our updated 43-101. I will then pass over to our CFO, Steve Thomas, to discuss the financial performance, and then to Dr. April Haywood, our recently appointed Chief Sustainability Officer, to discuss our hard work on the important area of corporate social responsibility. And then I will close with some comments on exploration and our investment thesis, as well as our direction moving forward. Also present on this call is Reid Mackey, our Vice President and Head of Sales and Marketing, Matt McPhail, our Chief Technical Officer, and Dr. Tom McCandless, our Vice President and Head of Exploration. The team will be available for any questions that you may have. Mountain Province is a Canadian diamond producer, mining Canadian diamonds to the highest standards of corporate social responsibility, and that is something that we're proud of. We own 49% of the Gatcho Quay mine in our Northwest Territories, with the beers owning the remaining 51%. We operate with a joint venture agreement with a four-person management committee, two from De Beers and two from Mountain Province. We've appointed De Beers as the operator of the asset, and that has resulted in the operating systems of De Beers and Anglo American being applied to the assets, including the high standards of corporate social responsibility that I've already mentioned. In addition to the 5,025 hectares of joint venture ground, containing the existing mining operations, Mountain Province is the 100% owner of around 107,000 hectares of highly prospective ground that surrounds the Gatcho Clay assets. We refer to this as the Kennedy properties. I'll speak more about that in a few moments. While this is the discussion around our 2021 results, I will speak briefly about our debt, which is a question on many people's minds. we received an overwhelmingly positive vote from shareholders on the US $50 million financing that we closed yesterday, provided by Mr. Dermot Desmond. Mr. Desmond is a significant shareholder in the company and has been a stalwart of support for the company as it moved through a commodity down cycle as well as a global pandemic, both of which are now largely behind us. As we move towards the term of the existing US $300 million in bonds in mid-December of this year, at this time, we are focused on financing solutions that will be friendly to existing equity holders with some mix of cash flow and debt. I remain very confident that we will get this done in a manner that is positive for equity holders. Our debt to EBITDA target by the end of 2023 is 2 to 1, with a long-term debt to EBITDA target of 1 to 1. Now it's important to say a few words on the macro environment that we find ourselves in and what that means for Mountain Province. On the supply side, we know that the Argyle mine in Australia is closed. And Argyle does provide an analog to some of our diamonds. And that's a large supply stream to take out of the market. In 2021, the global production was around 116 million carats, well down from 152 million carats in 2017, and in a year when we saw increasing demand. We have seen strong demand so far in 2022, with our current pricing significantly better than our 2021 levels. The latest Bain & Company Global Diamond Industry Report contained a bull and a bear case. The bull case has demand continuing to increase by 5% to 7%, slowing to 2% to 4% in 2023, while their bear case sees continued growth of 2% to 4% in 2022, and then in 2023, a slide of 2% to 4%, and a 1% to 3% increase from 2024 onwards. While I don't personally subscribe to the Bain & Company bear case, even in that scenario, we would be well above our 2021 pricing that has led to record results. The unknown factor in all of this is the future of Russian-mined diamonds. In 2021, Russian diamonds were around 30% of all diamonds produced, and we've seen several major retailers move away from Russian diamonds. As a pure Canadian diamond miner, With a partner in De Beers who share our focus on responsible mining, we feel that we're very well positioned through this period. To remind you of the scale of Gatcho Quaid, it is the fifth largest diamond mine in the world in terms of production. Turning to our updated 43-101 that was released last night, we've reviewed the pricing model based on current diamond prices and the production plan as of December 31, The result is a discounted net present value of more than $1.2 billion on a pre-tax, pre-royalty basis, which is a significant increase on the previous MPV at the same discount rate of $595 million. So we've seen an uplift of more than $600 million in value. The details of our updated 43-101 are posted on CDAR and have been subject to a separate press release. I will add that while the updated 43-101 is immensely positive for the company, it does include a production dip in 2024. This is something that management have been working hard with our joint venture partner on since January, and we see a path to positively impact the 2024 mine plan, which remains important work in progress. I will highlight the 2.6 million carats in reserve addition before depletion and note to shareholders that we continue to be focused on mine exploration and resource expansion. Turning to our 2021 results, I will firstly say that 2021 was a record year for Mountain Province in generating $135 million in adjusted EBITDA, a 163% increase relative to 2020. More about that in a moment. you can see our high-level production statistics for the fourth quarter and the full year 2021. Compared to the same quarter last year, we've improved on total tons mined, all tons mined, and all tons treated. However, due to mine sequencing, specifically which parts of the ore body we had access to during the quarter, grade was slightly lower than Q4 2020 at 1.86 carats per tonne. This resulted in quarterly mine production of 1.51 million carats with our 49% share at 741,000 carats. For the full year, our share of the mine's production came to 3.05 million carats. During the year, the mine moved 35.5 million tonnes of combined ore and waste and processed approximately 3.1 million tonnes of ore, noting that these figures include almost an entire month of production lost due to the COVID-19 related stand down at site during February of 2021. In 2021, we mined more ore than was processed, resulting in an ore stockpile of more than 730,000 tonnes containing 1.5 million carats. This gives us additional flexibility as we move into 2022. I'll now pass the presentation over to Steve, who will cover the financial performance.

Thank you, Mark, and good morning, everyone. It is my pleasure to join Mountain Province colleagues for my first results call, and I look forward in future to being able to talk to equally strong financial progress for the company as we have seen over the last 12 months. As Mark mentioned, I will cover the financial performance for the fourth quarter and year-ending 2021. And although Mark broached our recently closed financing arrangement, I will add some further colour to that and other standout financial progress made in 2021 and since then. All numbers are stated in Canadian dollars unless otherwise indicated. Before focusing on particular aspects of financial performance, I will first provide a high-level financial overview of the business. Bearing in mind that the sales achieved and the costs incurred at the GK operation were done so against the backdrop of continuing action plans to lessen the likelihood and impact of interruptions at the site due to COVID-19, which have been well managed by De Beers as operator, these results are all the more impressive. Per our financial statements, net income has increased to $276.2 million compared to last year's loss of $263.4 million. Of this increase of $540 million, $458 million is due to booking a $241 million reversal of impairment in 2021. compared to an impairment charge of $217 million in 2020. I will speak more on this shortly, but the point to emphasize is twofold. Firstly, that beyond this accounting impact and the associated impacts on depreciation and deferred tax expense, approximately $90 million is due to improved earnings from mine operations. Secondly, the significant reversal of the impairment reflects a sea change in the state of the health of the sector, which is apparent in the rough diamond sales price underpinned by a buoyant downstream market. The $90 million earnings improvement comprises two elements. An $82 million increase in revenue to $308 million in 2021, with the average selling price per carat at $75 per carat versus $51 per carat in 2020. This substantial price increase is the trigger event that required management to review the impairment calculation. Secondly, the reduction in the combined cost of production and acquired diamonds falling from $165 million in 2020 to $156 million in 2021. The reduction in production costs is largely in line with reduced ore treated in 2021 compared to 2020, which results in 3,158 carats sold in 21 compared to 3,329,000 sold in 2020. Despite that reduction in carats sold with ore tons mined during 2021, exceeding those processed, this resulted in a steady buildup of the ore stockpile from 269,000 tons valued at $9.2 million at year end 2020, to 731,000 tonnes valued at $26.4 million at year end 2021. And that will feed into production in 2022. Turning to the balance sheet, its financial capacity and health has increased. That reflects the impairment reversal, which underpins the increase in total assets from $595 million to $877 million, and with the elimination of the balance on the revolving credit facility, which stood at $31.8 million at 2020 year end. But that is offset by a new non-cash deferred tax liability of $21 million, arising due to the impairment reversal. Beyond capacity, the complexion of the balance sheet has changed also, with the recategorization of the US$300 million secured notes payable moving from long-term to current liabilities. And so, until refinance, significantly impacts the consequent working capital number. Considering the year end and into Q1 2022, it is worth noting also that with the termination of the US$33 million term facility at the year end and the US$25 million revolving credit facility ending on the 31st of March this year, the company has now entered into a US$50 million junior credit facility with Dunebridge Worldwide Limited. that does not mature until December 2027. This provides an excellent foundation to proceed the financing solution in respect of the US dollar 300 million senior secured notes, which mature in December 2022. Securing this form of financing early in 2022 puts the company in a far better financial position than it was 12 months ago. I will now turn to unpacking some specific elements of the fourth quarter and the year ended December 2021. Turning first to earnings, in the fourth quarter of 2021, the company sold 809,000 carats for $85 million at an average realized price of $105 per carat, i.e. US $84 per carat. Compared to sales in the fourth quarter of 2020 of 957,000 carats for $80.2 million at an average realized value of $84 per carat, i.e. US $65 per carat. The two key takeaway messages from this are that although the reduction in carrots reflects unplanned plant downtime, which happened in addition to the planned maintenance downtime due to COVID constraints, limited headcount flexibility, the situation is now controlled with the site moving from peaking at around 55 people in quarantine to several weeks of zero cases. And as of today, there were only four cases identified at the last crew change requiring quarantine. Secondly, the price per carat achieved in Q4 has continued to go from strength to strength in the first two sales of the year, averaging over US$130 per carat. In hand with these sales, Q4's cash cost per carat recovered at $60 is slightly above the previous year's Q4 of $56 per carat and the full year average for 2021 of $55 per carat. Despite the impact on business as usual due to COVID-related measures, the operation has responded with initiatives to improve both labor and equipment availability, resulting in 10% more tons mined in Q4 2021 across the 5034, Hearn and Tuzo pipes compared to Q4 of 2020. For Q4 2021, this performance translated into reported net income of $237.6 million or $1.13 per share. compared to a loss of $189.2 million or negative $0.90 per share for Q4 2020. For the full year ended 2021, net income was $276.2 million or $1.31 per share versus a loss of $263.4 million or negative $1.25 per share for year end 2020. To normalize these comparisons, given the significant impact of impairment treatment, we should consider adjusted EBITDA, which was comparable at $37.1 million for Q4 2021, compared to $37.2 million for Q4 2020. However, for the full year 2021, adjusted EBITDA was $135.3 million with a margin of 44% versus the year-end 2020 with adjusted EBITDA of $51.5 million with a margin of 23%. This underscores the perspective that 2021 has been an exceptionally strong year for the company. Turning now to the balance sheet, although dominated by the impact of one, the impairment reversal, which increased property, plant, and equipment at the year-end 21 to $714.5 million, and two, the recategorization of the loan notes payable to short-term, it is worth noting the following elements also. Regarding restricted cash, a further cash injection of $10 million took place in Q4, and this is due to be followed by an additional $10 million per annum for the next three years, subject to any future changes to the assessed decommissioning and restoration liability. In 2021, the decommissioning and restoration liability for the GK mine increased from $70.5 million at year-end 2020 to $90.4 million at the year-end 2021, resulting from assessed refinement in scope, individual unit cost increases, and changes in discount rates. Secondly, the balance sheet now reflects the deferred tax liability established in Q421 because of the impairment reversal mentioned earlier. This non-cash liability recognises that the book value of depreciation applicable to the written-up assets exceeds the future tax allowances available on the tax equivalent base. In conclusion, the summary portrays what has been a strong year for the company, both operationally and financially. The program of efficiencies that are necessary and constant feature of this complex mine are continuing, with the current Mountain Province team certainly able to contribute effectively to driving the operator towards these continual improvements. These initiatives are particularly important as we move into a year that is exhibiting increased price inflation, especially in relation to recent events impacting the price of fuel delivered on the winter road, a tightening labor market, and competing with mining operations across the country driven by elevated commodity prices. However, in hand with this, we have experienced significant growth in rough diamond prices since the lows of mid-2020 that are well ahead of these inflationary pressures. Having dealt with the financial performance during 2021, I would like to discuss two final matters. Firstly, and as a positive development for the mine, During mining in the open months of 2022, additional unmodeled resource has been encountered that is economic, but carrying a lower grade than planned mining areas. This incremental unmodeled kimberlite will be incorporated into the stockpile strategy throughout 2022 with a net effect of lowering process grade, but a net increase in life of mine or tons. It is seen as a positive by Mountain Province that more diamond-bearing ore is being mined that existed in the mine plan. Secondly, regarding guidance for 2022, Now that we are well advanced into the year and through the toughest quarter in relation to weather conditions that often impact processing availability, and also aware of the impact of current exceptional inflationary catalysts on total winter road spend, particularly fuel costs, we feel it is appropriate to revise the guidance provided for the year ended 2022. In line with yesterday's press release and in summary, there are three events playing into this consideration of re-guiding. Firstly, to the global oil price shock during the period when approximately 55 million litres of diesel are procured and delivered, a material once-off and unbudgeted diesel price increase was experienced. Secondly, the impact of previously announced COVID-19 outbreak at site. And thirdly, failure of the pitman bearing in the primary crusher. These three matters together impacting annual production and costs. Now, the good news is that for each of these matters, that impacted dollar cost and production is quantifiable and now behind us. And for fuel, 100% of the diesel for the year has been purchased. Secondly, the site is experiencing no interruption from COVID-19 cases. And lastly, the crusher has been repaired and is operating at full capacity. Although now managed, given that these issues combine to impact production and cost metrics in the 2022 operating year, the company feels The following revised targets warrant re-guidance. Carrots recovered are revised to 6.2 to 6.4 million from the previous 6.3 to 6.7 million. Production costs per tonne treated are revised to $131 to $137 from the previous $121 to $127. And lastly, production costs per carat recovered are revised to $71 to 76 versus the previous range of $64 to 68. In respect of the following metrics regarding total tons mined or tons mined or tons treated and sustaining capital expenditure, those targets remain unchanged. Thank you for your attention. And with that, I will now pass over the presentation to April, who will briefly discuss our work around sustainable development initiatives. April.